Fixing Unfair Contracts

Abstract

Various doctrines of contract and consumer protection law allow courts to strike down unfair contract terms. A large literature has explored the question which terms should be viewed as unfair, but a related question has never been studied systematically – what provision should replace the vacated unfair term? How should a distributively unfair contract be fixed? This Article demonstrates that the law uses three competing criteria for a replacement provision: (1) the most reasonable term; (2) a punitive term, strongly unfavorable to the overreaching party; and (3) the minimally tolerable term, which preserves the original term as much as is tolerable. The Article explores in depth the third criterion – the minimally tolerable term – under which the smallest intervention that is necessary is applied. This criterion, which has received no prior scholarly notice, is surprisingly prevalent in legal doctrine. The Article surveys its ubiquity and explores its conceptual and normative underpinnings.